HEARD ON THE STREETMARCH 24, 2010.Li & Fung's Early Warning "The Wall Street Journal"
By MOHAMMED HADI and DAVID ROMAN
El mercado asiático y las existencias en el mercado de tiendas Wal Mart
Yàzhōu shìchǎng bìng zài wò ēr mǎ bǎihuò shìchǎng de gǔpiàoConsider it an early warning.
Shares of Hong Kong-listed clothing supplier Li & Fung—which sources apparel for the likes of Wal-Mart Stores(See the news about stocks*) and Kohl's—slid nearly 11% Thursday on the heels of its 2009 earnings report.
The problem isn't with Li & Fung. Last year was its most profitable yet, with earnings rising 39% even as weakness among U.S. and European retailers pushed sales lower.
.The problem is that investors have gotten carried away with the latest investment theme to grip Asian markets: inventory re-stocking.
Economists argue that Asia's export recovery is entering a new phase as U.S. retailers fill their storerooms with T-shirts and laptop computers in anticipation of returning shoppers. A rebound in stockpiles makes some sense. U.S inventories have been depleted for four straight quarters, and the ratio of inventories to sales collapsed to almost a decade-low in January.
Investors have piled in behind this. Li & Fung was trading at record highs and substantially over historic valuations. Shares of others, like South Korea's Samsung Electronics, which sells everything from computer chips to mobile phones, and Yue Yuen, which makes shoes for Nike, Adidas, Timberland and other big brands, have fared similarly well.
But re-stocking will be a long and not entirely smooth process. Already the fits and starts are evident: With economists expecting U.S. wholesale inventories to increase in January, they actually fell.
In addition, businesses, remembering the damage done during economic the crisis, may stick to a shorter restocking cycle. The Institute for Supply Management says 68% of the nonmanufacturers it surveyed last month think inventory levels are "about right," while 26% said they were "too high"—both indications that big stockpiling isn't in the immediate forecast. Broadly, its February business surveys show inventories are still contracting.
On this front, Li & Fung is a bellwether. Orders are picking up, but the company's president, Bruce Rockowitz, was quick to note that a return to the high inventory levels of 2007 is not in the cards.
Write to Mohammed Hadi at firstname.lastname@example.org and David Roman at email@example.com
*About Wal Mart stocks...
Trading Idea - Is Wal-Mart close to Resistance?
Written by TradersHuddle Staff
Thursday, 25 March 2010 07:56
New York, March 25th (TradersHuddle.com) - Shares of Wal-Mart Stores, Inc. (NYSE:WMT) are trading very close to calculated resistance at $56.27 with the current price action closing at just $55.58 placing the stock near levels that make it difficult to buy.
Wal-Mart Stores, Inc. (NYSE:WMT) operates discount stores, supercenters, warehouse membership clubs, and neighborhood markets. The Company's stores sale products like general merchandise, apparel, electronics and groceries. Wal-Mart operates the warehouse membership stores under the Sam's Club name, where the company sell assorted merchandise including its private label products. Wal-Mart was founded by Sam Walton in 1945 and is based in Bentonville, Arkansas.
Wal-Mart's current stock range is defined by current calculated support defined at $48.73 and by the resistance level at $56.27, the stock is clearly over-extended from support, making it difficult to establishing new long positions at this level.
Traders don't have a clear entry point for Wal-Mart, as the stock is well above support, however, as the stock pulls back towards $48.73 it will definitely provide a reference point to establish a trade. On the other hand if the stock decides to break above resistance level at $56.27 then traders will get an opportunity to enter Wal-Mart stock by establishing a position as the stock moves to a higher range.